A firm has become a monopolist in the market for dvd

Assignment Help Microeconomics

Reference no: EM13712011

Suppose a firm has become a monopolist in the market for DVD players (remember those?). The market that lasts for exactly two periods (after 2 periods everyone switches to a newer technology). A DVD player is a durable good, so if it is sold in period 1 it can be used in period 2. Demand for the use of a DVD player for 1 period is described by P(Q) = 400 - Q (demand is the same in both periods). Consumers who purchase a DVD player in period one may either use the DVD player again in period 2 or resell it to another consumer. The firm can produce DVD players in either period at a marginal cost of zero. To simplify the math, assume the firm does not discount future profits (δ = 1) and that used DVD players are just as good as new ones.
1. Suppose the firm decides only to rent DVD players with single period contracts. If the firm is behaving optimally how many DVD players does it decide to rent in each period?
2. What is the price of DVD player rental in each period, and what is the firms total profits.
3. Now suppose the firm sells DVD players rather than rents. Also assume that the firm can commit in period 1 to how many DVD players it will sell in both periods. What is the optimal strategy for the firm. How many DVD players does it sell in each period?
4. What are its total profits from this strategy?
5. Compare profits from the rental market to profits from selling with commitment. Why are they similar or different?
6. Compare the price of rental in period 1 to the price of DVD's in period 1 when the firm can commit. How are they similar or different?

Reference no: EM13712011

Questions Cloud

External environment in which health care organizations : As you have been learning this week, the external environment in which health care organizations function can greatly influence day-to-day operations and the delivery of services. Health care administrators must therefore pay attention to local..

Indicate whether the production function exhibits decrease : 2. a) For the following firm production function, indicate whether the production function exhibits decreasing, constant, or increasing returns to scale. yi is the firm i's output, ki is the firm's capital input, and li is the firm's labor input.

How much value did each person add : A dairy maker sells 250$ of milk to a cheese maker. The cheese maker users the milk to make $450 of cheese and sells it to a wholesaler. The wholesaler sells it to a retailer for $600. The retailer sells it for $1200. What is the GDP from this ..

Pear inc. is a monopolist producing the iwatch : Pear Inc. is a monopolist producing the iWatch, a wristwatch mobile communication device. The iWatch is a device that will last for exactly two periods, after everyone will switch to Boogle Glass, a eyeglass mobile communication device that is ..

A firm has become a monopolist in the market for dvd : Suppose a firm has become a monopolist in the market for DVD players (remember those?). The market that lasts for exactly two periods (after 2 periods everyone switches to a newer technology). A DVD player is a durable good, so if it is sold in..

Graphically illustrate and explain why a fixed exchange regi : 1.Graphically illustrate and explain why a fixed exchange regime without foreign exchange controls is incompatible with inflation targeting.

The opportunity to do analysis on the data : Task Background: Graphs and trees provide you with ways to visualize data sets, and the opportunity to do analysis on the data (e.g., shortest path). Knowing the structure of a database enables you to choose a proper algorithm for searching for..

Identify the java-based technologies utilized : 1. Identify the Java-based technologies utilized in this project and analyze each of them. Then, provide discussion on the purpose of each of the Java-based technologies utilized. 2. Explain why you believe project managers selected these Java-ba..

User Account

All Pages